Sen. Chuck Grassley took the Justice Department to task Wednesday for its fair lending settlement with Countrywide Financial Corp., saying it will have minimal economic impact for affected borrowers.
The department's original complaint sought to make victims of discrimination whole again, but Grassley said the $335 million settlement — the largest fair lending settlement in history — only amounts to an average of $1700 per victim. He said the $25 billion mortgage servicer settlement also fails to provide meaningful remediation to borrowers.
Grassley, the top Republican on the Senate Judiciary Committee, complained that the Justice Department hasn't filed any criminal charges related to the financial crisis, and he questioned how the agency was using its resources.
“Won't banks that may have discriminated view settlements that are so much weaker than the release sought in the department's complaint as a cost of doing business rather than a deterrent of a future bad act?” Grassley asked at a hearing on lending discrimination.
Tom Perez, the assistant attorney general of Justice' civil rights division, said banks view the penalties as too harsh. “We certainly hear from banks that we're too hard on them, so it's interesting that you should say that,” he said.
Perez defended both the servicer settlement with state AGs, and the Countrywide settlement. Perez said some African-American and Hispanic victims who were steered into subprime loans would receive tens of thousands of dollars under the settlement.
“I don't think there's any home run in the work that we do,” he said. “There is no one case that is going to be the panacea to address all of the abuses of the past 10 years.”
The Justice Department alleged that Countrywide – bought by Bank of America Corp. in August 2008 – charged minority borrowers higher fees and interest rates because of their race, and steered thousands of them into subprime loans when white borrowers with similar credit histories received prime loans.
The settlement provides direct compensation for more than 200,000 African-American and Hispanic borrowers who were allegedly discriminated against. Officials said the discrimination spanned more than 180 geographic markets in 41 states. But the epicenter of the discriminatory practices was California, where 30% of the victims lived.
“I hope that the recent settlement put banks and others on notice that our laws will be enforced,” Chairman Patrick Leahy, D-Vt., said at the hearing.
Leahy also commended the Justice Department's fair lending unit for its efforts to combat foreclosure errors involving members of the military and their families, including violations of the Servicemembers Civil Relief Act (SCRA).
Through agreements with the Justice Department announced this week, servicers are now conducting reviews of all foreclosures involving servicemembers dating back to 2006, and are reviewing all servicemember files to determine if they were charged improper interest rates in violation of the SCRA.
“It's not only inexcusable but it is disgusting to see some of the news accounts, in total violation of the law foreclosing on men and women in uniform,” Leahy said.